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How customer segmentation can help drive your subscription business to success in 2020

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How customer segmentation can help drive your subscription business to success in 2020

November 21, 2019

If you have a service or selection of products that appeal to everyone, or to a diverse market of people, you have a significant advantage in that you have a much wider audience to reach and draw revenue from. However, you also have the disadvantage in that it’s hard to develop a marketing message or an approach to business that everyone will like. That’s where customer segmentation comes into play.

With customer segmentation, the aim is to divide customers into distinct groups. These groups can be based on the demographics of age, location, occupation, industry, marital status, life stage and such. In a B2B context, occupation, industry, number of employees and position in company may also factor into segmentation.

The benefits of customer segmentation

By segmenting your customers, you make it much easier to develop strategies in marketing and product/service development that are able to better target subsections of your audience. If your brand has products or services that appeal to both moms in their 40s and college graduates, you’re not going to be able to reach them through the same messages, and they aren’t likely to want the same things from your product or service.

Segmenting the audience allows you to:

  • Create targeted marketing messages that speak to common pain points and from a shared point of reference with different groups of customers. You can develop different messages for different customers and make sure that a potential customer is always hearing the message targeted to their needs or interests.
  • Develop strategies that are more likely to reach your audience based on what platforms they use, whether it be social media, email, radio marketing. This combined with your targeted messaging ensures more precise marketing.
  • Build new revenue streams by developing specialized products and services for segments of your market. You can test new price points, find which segments can be better upsold on other services, and more.
  • Better understanding your customer means you can improve customer service and establish better communication, ensuring that you’re talking to customers about the services/products relevant to their interests.

Using customer segmentation with a subscription model

Most businesses with a wide enough target market will benefit from customer segmentation, including those who work on a subscription model. Let’s look into some of the ways you can use segmentation and the most effective ways of doing it.

Understand the different types of segmentation

Your business is not going to segment customers in the same way that others do. There are four main methods of segmentation, and you should run models of each of them to see which is most helpful for your business. The four are:

  • Geographic: this differs on the scope of the company, but it can mean which town, city, county, state, or county they live in.
  • Demographics: this can include age, gender, their occupation, what socio-economic group they are in, marital status, and education.
  • Behavioral: this is based on internal data, such as their spending and consumption habits, brand loyalty, readiness to purchase, or what part of the customer lifecycle they are in.
  • Psychographic: harder to find data for, in many cases, this can include personality, values, attitudes, social class, and other traits.

Each segment allows you to get a better understanding of who your customer is, and can help you find things in common between different subsections of customers who provide more revenue than others on average.

Customer segmentation to understand who your best customers are

A subscription economy is not built on customers who are all the same. Instead, your business will find that certain customers are going to spend more than others, are going to be more loyal to the brand, and are going to be more valuable in terms of feedback and engagement. As such, one of the big benefits of segmenting your market is that you’re able to see where your most valuable customers. This can make it easier to target them more proactively with customer service and marketing.

Customer segmentation can help you expand

You will be able to use segmentation to understand who your best customers are, but how about your second best or third best? You might find segments who show an interest, but rarely convert. This gives you the opportunity to scale, to change your message or offer a slightly different subscription that is skewed towards them. Similarly, you can use it better retain a segment of customers who tends to try out the service for a while, only to cancel their subscription after a while.

Developing new subscriptions could be key to maximizing your services potential

As mentioned above, creating new subscription services can help you expand and scale your business. For instance, if your subscription service delivers a box of books every month. Instead of sending books based on what’s most popular, you can have different categories, so some segments more likely to enjoy YA fiction will still get what they want while a more mature audience who wants drama, romance, or horror fiction will get their wants met, too. You can also use segmentation to understand where your highest spending customers are, and you can create premium subscriptions designed specifically to appeal to them.

Know when to target your customers

Mixing behavioral data with the different demographics that make up your most profitable segments, you can create strategies of capitalizing on different segments when they are their most valuable. You can find out the time of year they tend to subscribe more, their preferred ways of using your service, and more. This can help you develop strategies so that, for instance, if you know that older men are more likely to subscribe in the summer, then your marketing will target them in the summer.

Segmenting your customers can unlock a lot of potential in your business

Understanding your customers means understanding how better to capitalize on them. It also means understanding their needs and pain points, so you can offer better customer service. The subscription economy runs on long-term relationships, so segmenting your customers to better understand them works to the positive of everyone involved.



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